1

COCA-COLA BOTTLERS PHILS., INC.

vs.
ALAN M. AGITO, REGOLO S. OCA III, ERNESTO G. ALARIAO, JR.,
ALFONSO PAA, JR., DEMPSTER P. ONG, URRIQUIA T. ARVIN, GIL H.
FRANCISCO, and EDWIN M. GOLEZ
respondents [salesmen assigned at the Lagro Sales Office for 4 years
but not regularized] filed 2 complaints against Coca Cola Bottlers,
Interserve, Peerless Integrated Services, Inc., Better Builders, Inc.,
and Excellent Partners, Inc. for reinstatement with backwages,
regularization, nonpayment of 13th month pay, and damages.
Their employment was terminated on 8 April 2002 without just cause
and due process. However, they failed to state the reason/s for filing
a complaint against Interserve; Peerless Integrated Services, Inc.;
Better Builders, Inc.; and Excellent Partners, Inc
COCA-COLAS STAND: respondents employees of Interserve [(1)
respondents Personal Data Files in the records of Interserve (2)
respondents Contract of Temporary Employment with Interserve (3)
the payroll records of Interserve]; contracted services
: interserve is bona fide independent contractor with substantial
capital or investment in the form of tools, equipment, and
machinery necessary in the conduct of its business [as provided by
(1) the Articles of Incorporation of Interserve (2) the Certificate of
Registration of Interserve with the BIR (3) the Income Tax Return, with
Audited Financial Statements, of Interserve (4) the Certificate of
Registration of Interserve as an independent job contractor, issued
by DOLE]
LA: DISMISSED; employees of Interserve and not of Coca-cola
:Art. 280 not applicable
: While respondents performed activities that were necessary and
desirable in the usual business or trade of petitioner, respondents
functions were not indispensable to the principal business of
petitioner, which was manufacturing and bottling soft drink
beverages and similar products
: the circulars, rules and regulations which petitioner issued from time
to time to respondents were not indicative of control as to make the
latter its employees
NLRC: AFFIRMED; no er-ee relationship between respondents and
Coca-Cola Bottlers
: Interserve was an independent contractor as evidenced by its
substantial assets and registration with the DOLE; it was Interserve
which hired and paid respondents wages, SSS, Medicare, and Pag-
ibig contributions
CA: REVERSED- regular employees of coca cola; Interserve
Management & Manpower Resources, Inc. (Interserve) was a labor-
only contractor, whose presence was intended merely to preclude
respondents from acquiring tenurial security
:Coca-Cola exercises control; respondents, who were tasked to
deliver, distribute, and sell Coca-Cola products, carried out
functions directly related and necessary to the main business of
petitioner
: provisions of the Contract of Service between Coca-Cola and
Interserve suggested that the latters undertaking did not involve a
specific job, but rather the supply of manpower
ISSUE: whether Interserve is a legitimate job contractor
PETITION: labor-only contracting since respondents did not perform
activities that were indispensable to petitioners principal business;
unable to show that petitioner exercised the power to select and
hire them, pay their wages, dismiss them, and control their conduct
SC: PETITION DISMISSED|CA AFFIRMED WITH MODIFICATION|
ILEGALLY DISMISSED
: The law clearly establishes an employer-employee relationship
between the principal employer and the contractors employee
upon a finding that the contractor is engaged in "labor-only"
contracting. Article 106 of the Labor Code categorically states:
"There is labor-only contracting where the person supplying workers
to an employee does not have substantial capital or investment in
the form of tools, equipment, machineries, work premises, among
others, and the workers recruited and placed by such persons are
performing activities which are directly related to the principal
business of such employer." Thus, performing activities directly
related to the principal business of the employer is only one of the
two indicators that "labor-only" contracting exists; the other is lack of
substantial capital or investment. The Court finds that both indicators
exist in the case at bar.
: The work of respondents, constituting distribution and sale of Coca-
Cola products, is clearly indispensable to the principal business of
petitioner. The repeated re-hiring of some of the respondents
supports this finding.
: The Court does not set an absolute figure for what it considers
substantial capital for an independent job contractor, but it
measures the same against the type of work which the contractor is
obligated to perform for the principal. However, this is rendered
impossible in this case since the Contract between petitioner and
Interserve does not even specify the work or the project that needs
to be performed or completed by the latters employees.
: The CONTRACTOR, not the employee, has the burden of proof that
it has the substantial capital, investment, and tool to engage in job
contracting; burden of proof herein falls upon petitioner who is
invoking the supposed status of Interserve as an independent job
contractor
: Interserve did not have substantial capital or investment in the form
of tools, equipment, machineries, and work premises; and
respondents, its supposed employees, performed work which was
directly related to the principal business of petitioner. It is, thus,
evident that Interserve falls under the definition of a "labor-only"
contractor [ART 106; SEC 5 (i) of the Rules implementing arts 106-109]
: Interserve did not exercise right to control as [SEC 5 (ii) of the Rules
implementing arts 106-109]
:Paragraph 3 of contract between Coca cola and Interserve
explicitly established control of coca cola over the conduct of
respondents
:paragraph 2 of contract- left a gap which could enable petitioner
to demand the removal or replacement of any employee in the
guise of his or her inability to complete a project in time or to deliver
the desired result. The power to recommend penalties or dismiss
workers is the strongest indication of a companys right of control as
direct employer
:paragraph 4 of contract- independent job contractor would surely
have the discretion over the pace at which the work is performed,
the number of employees required to complete the same, and the
work schedule which its employees need to follow
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: Interserve was engaged in prohibited labor-only contracting,
Coca-Cola shall be deemed the true employer of respondents
NOTES:
Art 106 recognizes two possible relations among the parties: (1) the
permitted legitimate job contract, or (2) the prohibited labor-only
contracting.
A legitimate job contract, wherein an employer enters into a
contract with a job contractor for the performance of the formers
work, is permitted by law. Thus, the employer-employee relationship
between the job contractor and his employees is maintained. In
legitimate job contracting, the law creates an employer-employee
relationship between the employer and the contractors employees
only for a limited purpose, i.e., to ensure that the employees are
paid their wages. The employer becomes jointly and severally liable
with the job contractor only for the payment of the employees
wages whenever the contractor fails to pay the same. Other than
that, the employer is not responsible for any claim made by the
contractors employees.
On the other hand, labor-only contracting is an arrangement
wherein the contractor merely acts as an agent in recruiting and
supplying the principal employer with workers for the purpose of
circumventing labor law provisions setting down the rights of
employees. It is not condoned by law. A finding by the appropriate
authorities that a contractor is a "labor-only" contractor establishes
an employer-employee relationship between the principal
employer and the contractors employees and the former becomes
solidarily liable for all the rightful claims of the employees.
____________________________________________________________
Section 5 of the Rules Implementing Articles 106-109 of the Labor
Code, as amended, provides the guidelines in determining whether
labor-only contracting exists:
Section 5. Prohibition against labor-only contracting. Labor-only
contracting is hereby declared prohibited. For this purpose, labor-
only contracting shall refer to an arrangement where the contractor
or subcontractor merely recruits, supplies, or places workers to
perform a job, work or service for a principal, and any of the
following elements are [is] present:
i) The contractor or subcontractor does not have
substantial capital or investment which relates to the job,
work, or service to be performed and the employees
recruited, supplied or placed by such contractor or
subcontractor are performing activities which are directly
related to the main business of the principal; or
ii) The contractor does not exercise the right to control the
performance of the work of the contractual employee.
______________________________________________________________
"Substantial capital or investment" refers to capital stocks and
subscribed capitalization in the case of corporations, tools,
equipment, implements, machineries and work premises, actually
and directly used by the contractor or subcontractor in the
performance or completion of the job, work, or service contracted
out.
The "right to control" shall refer to the right reversed to the person for
whom the services of the contractual workers are performed, to
determine not only the end to be achieved, but also the manner
and means to be used in reaching that end
____________________________________________________________
When there is labor-only contracting, Section 7 of the same
implementing rules, describes the consequences thereof:
Section 7. Existence of an employer-employee relationship.The
contractor or subcontractor shall be considered the employer of the
contractual employee for purposes of enforcing the provisions of
the Labor Code and other social legislation. The principal, however,
shall be solidarily liable with the contractor in the event of any
violation of any provision of the Labor Code, including the failure to
pay wages.
The principal shall be deemed the employer of the contractual
employee in any of the following case, as declared by a competent
authority:
a. where there is labor-only contracting; or
b. where the contracting arrangement falls within the
prohibitions provided in Section 6 (Prohibitions) hereof.
According to the foregoing provision, labor-only contracting would
give rise to: (1) the creation of an employer-employee relationship
between the principal and the employees of the contractor or sub-
contractor; and (2) the solidary liability of the principal and the
contractor to the employees in the event of any violation of the
Labor Code.
_____________________________________________________________
it was not enough to show substantial capitalization or investment in
the form of tools, equipment, machinery and work premises, etc., to
be considered an independent contractor. In fact, jurisprudential
holdings were to the effect that in determining the existence of an
independent contractor relationship, several factors may be
considered, such as, but not necessarily confined to, whether the
contractor was carrying on an independent business; the nature
and extent of the work; the skill required; the term and duration of
the relationship; the right to assign the performance of specified
pieces of work; the control and supervision of the workers; the
power of the employer with respect to the hiring, firing and payment
of the workers of the contractor; the control of the premises; the
duty to supply premises, tools, appliances, materials and labor; and
the mode, manner and terms of payment